The Young Chinese Tiger and the Old Sick American Lion

Watch any PBS program about how lions live on the African savannah. The dominant male lion rules over a pride of females and their young. As the young males mature and the ruling male ages, eventually one young lion will supplant the old lion as the leader of the pride…and life will go on.

In this article, we see that the males in the American lion’s pride…the nations of Europe and most of the West…are as sick as he is. So none of the other males will be wresting control from the old lion. But there is a young tiger quietly and cunningly rising to world leadership. That tiger is China.

The futures of China and the United States of America are inextricably linked over the next decade or two. But China is on the ascendancy as a world power, while the USA is hurtling toward the abyss of self-inflicted financial ruin and historical obscurity.

I referred to the “young” Chinese Tiger in the title for a reason. China is certainly a nation that has been a nation for thousands of years. And its political leadership has been under the Communist banner since Mao Zedong helped found the People’s Republic of China in 1949. But China’s recent embrace of capitalism began in 1978 under Deng Xiaoping. So, the economic reforms that have transformed China into the world’s leading economy are scarcely 32 years old. So the tiger that is beginning to strut the world is a young China. And America is the old, sickly, tired lion, still trying to assert his leadership with his hoarse, weak roaring.

And why is China ascending?

• The Chinese economy is growing at a rate of 8% annually. At that rate, it will double every 9 years.
• 330 million people speak English, more every day.
• The US has 300 million people, China has 1.2 billion.
• The US personal savings rate is zero. China’s savings rate is 34%.
• Beijing is encouraging Chinese people to buy gold. Washington is encouraging Americans to spend, spend, spend.

Look what has occurred in the United States over the last 32 years. In 1978, the Federal Government had a surplus of $55.4 Billion. Today, the Federal budget cannot really even be calculated. The part of the budget Washington will admit to is north of $3.834 TRILLION for the 2011 fiscal year. And don’t forget that there are untold billions of dollars being spent “off-budget” that Washington never tells us about. Washington now only makes a pretense of appearing to care about its future solvency and viability. And while DC pretends to care, it runs the printing presses over at Treasury and “monetizes” its budgets with counterfeit currency.

Washington has been able to spend profligately and mismanage its economy through the recent decades by also selling US Treasury bonds to China (and other nations). And because the American political system is entirely driven by the desire for re-election, no long-term strategies appear to have been DC’s lodestar. Not so with China. As their holdings of US bonds have increased, so has their hidden control of Washington. Yet, true to the Oriental culture, China patiently puts up with American bluff and bluster in regard to important issues between the nations.

One question for the future is this: How long will China stand by while Washington makes China the scapegoat for many of DC’s own ills? Anyone who observed the congressional hearings about how Google was being censored in China saw Chinaphobia on parade, as congress critters railed against the very censorship that Washington now pursues for itself. Washington’s rhetoric against China will likely escalate as politicians seek to blame all but themselves for America’s economic woes. Chinese forbearance will be sorely tested by DC’s war of words and at some point Beijing will move to end it.

A big media story last week was about the Nobel Committee ceremony, where Chinese dissident Liu Xiaobo was awarded the 2010 Nobel Peace Prize in absentia. The holier-than-thou media tried its best to embarrass Beijing for its refusal to allow Xiaobo to accept the award. But it occurred to me that in 1980, President Carter issued a boycott of the Summer Olympic Games because the Soviet Union was engaged in a war in….guess where? Afghanistan. I guess selective outrage has no memory.

The US Dollar has been the world reserve currency since the end of World War II. You would think that any nation whose currency had attained reserve status would be jealous of that status, and would do all it could to maintain the solvency and reputation of that very currency. But not DC. Through its use of inflation and fractional reserve banking, it has defrauded the entire world…while recently accusing the Chinese of being a “currency manipulator” nation. That Beijing refuses to inflate its money under DC pressure should bring embarrassment to DC, not Beijing. Like your mom said: If all your friends decided to jump off a cliff, does that mean that you should, too?

Washington is so myopic about the DC-Beijing connection that it scarcely notices that Beijing is consolidating its position around the world. Examples are:

• Establishment of BRIC, consisting of Brazil, Russia, India and China, representing 40% of the world’s population
• Deals with Canada for the Athabasca shale oil
• Deals with Russia on a basket of raw materials
• Oil and natural gas pipeline deals with Middle East producers
• Reducing exports on rare earth metals, crucial for technology applications (China produces 97% of world rare earths)
• Deals with South Africa and Brazil on iron ore and steel production
• Deals with African nations on oil production
• Recent announcement that China would begin producing airliners in China to rival Boeing and Airbus and serve its own needs
• And many many other deals

Both countries engage in mercantilism, the promotion of national interests by protectionism through subsidies and tariffs. The easiest way for American politicians to act is through protectionism and scapegoating. But because Washington is broke it cannot subsidize much more than it already has…not that it should. China’s pockets are deeper and they have proven willing to “play chicken” with DC on subsidies.

And recently, the Obama Administration announced big tariffs against Chinese tires. This is tantamount to pissing on the shoes of your banker. Seems to me that the banker might take exception to that gesture and respond how bankers retaliate…with financial sanctions of their own.

Make no mistake about this. Both Beijing and Washington know that Beijing holds the DC cojones firmly in its hands. When your banker holds almost $1 trillion in your notes, he controls you. China is slowly and carefully divesting itself of some US Treasuries in an effort to minimize their losses. They know how tenuous Washington’s financial situation is, and that some other nation could cause the collapse of the American economy. But Beijing also knows how strategic their US bond holdings are. They know that they control economic, political and military policy between America and China now, and that is a position that they will not relinquish while it serves their interests.

Washington should be grateful that China was its banker over the last 30 years. But like the old saying goes, “Nothing ages faster than gratitude.” Gratitude can quickly turn into resentment, and resentment to hostility.

The relationship between Washington and Beijing is only going to worsen and continue to sour. Just like the old lion is hostile to the upstart cub who challenges him for supremacy, so too will Washington increase its hostility to Beijing, even though Beijing already owns Washington. Sooner or later, Washington will either collapse under its own weight or outside forces will cause its collapse.

On the savannah, the young lions all know when the strength of the old lion is passed. When the old lion dies, the jackals and vultures come to pick his carcass clean. Sometimes, even the young lions feed on the carcass. Much the same is in store for the USA.

Then the Chinese Tiger will begin its long reign as king of beasts.

Have you called Rosetta Stone and ordered your set of Mandarin Chinese language tapes yet? Better get moving! I already have mine.